Sure, You’re Insured…But Does Your Policy Really Protect Your Business?

insurance coverageBusiness owners, by their nature, are creatures of optimism. The last thing that business owners want to think about is what can go wrong.Unfortunately, in the real world things can, and do, go wrong. Having the right kind of insurance coverage can protect you from the unexpected..but having the wrong type of coverage can also leave you very unpleasantly surprised.

It takes a thorough assessment of all of the possible risks and the possible business’ exposure to them to construct the right package of insurance coverage.  Since insurance is expensive, many business owners are tempted to cut corners or omit different types of coverage. This can be a penny-wise and pound-foolish approach.

While most business owners have some sort of coverage they need to ask themselves whether their policies really do protect their business against serious financial loss.

Balancing Cost and Coverage

No one single type of policy that will fully protect the business against every risk that could result in a monetary loss. And it’s impossible to protect against every eventuality – even if that were affordable.

For most businesses, it will require several different types of coverage to consider the business fully protected. Some coverages are wrapped together in master policies, while others are purchased separately or as riders. The first step is to identify where your risks are and assess which pose the greatest risk. From there, you can work with an insurance broker to structure a group of policies that protects you against the risks you are most concerned about.

Most Common Types of Coverage

General Liability Insurance: There is no question that business owners operate in an extremely litigious society, so this is obviously vital insurance coverage. Essentially, it covers you for damages caused by you, your business, or anyone for who you are responsible that result in injury or property loss.

Workers Compensation Insurance: Covers you for work related injuries to employees. This insurance is often required by state law.

Business Owner Policy (BOP):  This is a type of policy that includes both property insurance and liability insurance together.

Umbrella Liability Insurance: This provides additional liability insurance above and beyond the policy limits on your other policies. It is call “umbrella” coverage because it sits over the other limits and pays out after the underlying policies do.

Product Liability Insurance: If you manufacture a product you could be liable for any damage or injury it causes as a result of its use.  This could be especially important for food products.

Property Insurance: This covers damage to the business property, inside and out, including equipment and inventory.

Errors & Omissions (E & O) insurance: If yours is service business that offers advice or consultation (e.g., architects), errors and omission coverage protects the business against claims by your customers that your advice caused harm to them.

Business Overhead Expense Insurance: There’s a 1 in 6 chance that a business owner under the age of 65 will become disabled due to an accident or a sickness that will last for more than 3 months.  Business overhead coverage can provide the funds to keep the business operating during a long-term disability.

Auto insurance:  If your business owns and operates vehicles, you’ll need a business auto policy. Coverage for personally owned or rented autos used for business purposes can usually be added to the BOP.

Keeping Costs Down

Depending on your financial situation, one way to lower annual premiums is to raise your deductible as high as you can afford. This may allow you to buy better overall coverage with higher policy limits. It also pays to “shop” your insurance periodically. You can also ask you broker to get quotes from a variety of companies annually to use competition to help keep your costs down.

While this all may seem overwhelming to consider, it pales in comparison to the financial consequences of an underinsured business. No business owner likes paying insurance premiums, which seem to always go up exponentially each year.  But, the real worst case scenario is a business that is put out of business because it doesn’t have adequate coverage when something serious occurs.

There are ways to address your insurance needs with some degree of affordability. Working with a qualified business insurance specialist, you can conduct a thorough risk assessment to determine where the gaps in coverage are and look at specific insurances to fill the gaps. Many industry groups and associations offer group type coverage for different types of insurance. Sometime, it is worth paying the annual association fees to get access to the lower premiums.

And, if there certain aspects of your business that present a higher degree of risk, you may want to consider either outsourcing that aspect or eliminating it from your business if that is at all possible. If you outsource it, you may still need some coverage, but it will be cheaper for you because the other party will also have to have insurance.

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